How Farmers Can Avoid High Inheritance Tax

Recent changes to the government budget have introduced new rules regarding inheritance tax relief for farmers. Significant adjustments will take effect in April 2026, potentially impacting the amount of farming wealth that can be passed down to your family. Farmers need to stay informed about these changes, as they could significantly influence estate planning and succession.

What Is Agricultural Property Relief (APR)?

Agricultural Property Relief (APR) lets farmers pass on farming property without having to pay inheritance tax (IHT) as long as specific conditions are met. This relief applies whether the property is given away during your lifetime or passed down after your death.

Major Changes You Need to Know

Currently, farmers benefit from a generous 100% relief, meaning no inheritance tax on agricultural property. But starting April 2026, there’s a big catch! The government will cap this 100% relief to only the first £1 million of your combined agricultural and business properties. Anything over £1 million will receive just 50% relief, effectively meaning you’ll pay a 20% inheritance tax on the excess.

However, there’s good news: couples can still pass on a farm worth up to £3 million free from inheritance tax, provided:

• It includes a farmhouse worth at least £350,000.
• Neither partner has an estate worth over £2 million.

What Exactly Counts as Agricultural Property?

To qualify for APR, your property must be part of a working farm in the UK. Here’s a simple breakdown of properties that qualify:

• Land or pastures used for growing crops or raising animals.
• Growing crops
• Stud farms breeding and raising horses
• Short rotation coppice (trees harvested at least every 10 years)
• Land temporarily unused due to environmental programs (like the Habitat Scheme or crop rotation schemes)
• Milk quotas linked to the land.
• Certain agricultural shares and securities
• Farm buildings, cottages, and farmhouses—but only if they’re appropriate for farming activities and occupied by farm workers or retirees

To qualify, you must meet the occupancy requirements:

• If you farm the land yourself, have someone farm it on a short-term grazing licence, or rent it out under a tenancy agreement that began after 1 September 1995, you get 100% relief (subject to the £1 million cap from April 2026).
• You or your family must have occupied and farmed the property for at least two years. If someone else farms it, you must have owned it for at least seven years.

Watch Out! These Don’t Qualify:

APR does NOT include:

• Farm equipment
• Derelict buildings
• Harvested crops
• Livestock
• Any property already under contract for sale

However, some of these qualify for Business Property Relief if they meet specific rules.

Crucial Reminder:

Remember, farmhouses and farm buildings must match your farm’s scale and purpose. If the building’s value exceeds its agricultural use—for example, as a fancy country home—that extra value won’t qualify for relief.

Act Now to Secure Your Family’s Future!

With these upcoming changes, planning now can save your family thousands. Knowing exactly what qualifies for APR can help you protect your family’s wealth and avoid a hefty tax bill.

Don’t wait! Understand your APR eligibility today and safeguard your farm’s legacy.